Question

The sharing economy is a fast-growing phenomenon. People increasingly share their home, car, clothing or tools on Internet platforms such as Uber, WeWork, and Airbnb. Statistics shows that there were 44.8 million adults using the increasingly popular sharing economy services in the United States in 2016. This figure was forecast to increase to 86.5 million by 2021. Choose a sharing economy based company, briefly describe the business model of the company, show the major costs of the company (please be specific and thorough), and discuss the major challenges faced by the company to reach break-even (please limit your answer to 600 words or less)

Answer 1

The company chosen for this answer is UBER Uber provides on demand taxi services to its users. It is a smartphone application that is used by the passengers to find drivers who are willing to take them from one location to another. Uber's services are available in multiple countries in a number of cities. Uber is different from a traditional taxi service provider. It connects the passenger and the taxi driver in exchange of percentage of fee from the fare. The main advantage of Uber’s two-sided marketplace has been its efficiency. The medallion cab system operates through forced scarcity — there can only ever be a certain number of cabs on the road in any given city. As a result, fares are high. Cabs never seem to be around when you need them, like late at night or in the pouring rain. And over time, these problems get worse — as the population of a city grows, the cab population often doesn’t. Uber, on the other hand, has become more valuable the larger its network has grown. For Uber, growth means faster pickup times, more drivers on the road, and potentially lower prices for riders. It also means more revenue for Uber. It fits all the criteria of the ideal marketplace business. The major costs of the company are 1. Cost of revenue - It is the major expense which is approximately 40% of the opex. This includes data center expenses, mobile costs, service expenses, insurance costs, credit card processing fees to name a few. 2. General and Admin expenses - These mainly includes salaries to the permanent staff 3. Sales and marketing expense 4. Research expense 5. Support expenses The major challenges to reach operating break even would be to LIMIT THE OPERATING EXPENSES. It is expected that the revenues would grow to over $ 20 Billion by 2021. Using the above forecasts for the company’s various expenses, it is believed that it’s possible that it will approach operating break-even by 2021, as growth in expenses has been slower than the growth in revenues.